DRAFT: SUBJECT TO CHANGE PRIOR TO COMMISSION ACTION TEXAS TRANSPORTATION COMMISSION

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1 TEXAS TRANSPORTATION COMMISSION ALL Counties MINUTE ORDER Page of ALL Districts The Texas Transportation Commission (commission) finds it necessary to propose the repeal of and propose new.00-., all relating to contractor sanctions to be codified under Title, Texas Administrative Code, Part. The preamble and the proposed repeals and new sections, attached to this minute order as Exhibits A - C, are incorporated by reference as though set forth verbatim in this minute order, except that they are subject to technical corrections and revisions, approved by the General Counsel, necessary for compliance with state or federal law or for acceptance by the Secretary of State for filing and publication in the Texas Register. IT IS THEREFORE ORDERED by the commission that the repeal of and new.00-. are proposed for adoption and are authorized for publication in the Texas Register for the purpose of receiving public comments. The executive director is directed to take the necessary steps to implement the actions as ordered in this minute order, pursuant to the requirements of the Administrative Procedure Act, Government Code, Chapter 00. Submitted and reviewed by: Recommended by: Director, Construction Division Executive Director Minute Number Date Passed

2 Texas Department of Transportation Page of Proposed Preamble The Texas Department of Transportation (department) proposes the repeal of.00,.0,.0,.0,.0,.0, and.0 in its entirety and simultaneously proposes new.00,.0,.0,.0,.0,.0,.0,.0,.0,.0,.0,.,.,.,.,.,., and. all concerning contractor sanctions. 0 EXPLANATION OF PROPOSED REPEALS AND NEW SECTIONS The department's contractor sanction rules set forth the circumstances under which contractors may be sanctioned and the procedures that must be followed. The commission previously adopted to specify the process by which the department will administer and manage contractor sanctions associated with highway improvement contracts. 0 The proposed repeals and new sections are necessary to incorporate the consideration of an internal compliance program applicable to a contractor's organization in considering the application and level of a sanction; provide an opportunity for an informal hearing concerning a sanction decision prior to filing a formal appeal or request that an indirect sanction imposed as a result of an affiliation based solely on a family connection with a sanctioned firm be lifted; and reorganize the rules to provide clarity and better organization. In addition, OGC: 0//0 :0 AM Exhibit A

3 Texas Department of Transportation Page of the existing rule was reorganized and rewritten to provide better understanding and a chronological order of events in the consideration and application of sanctions. For reference purposes, detailed explanations of the location of existing rule are provided for each of the proposed new sections below. 0 New.00, Purpose, reorganizes and replaces existing.00 and sets forth the purpose of this subchapter to protect the health, welfare, and safety of the traveling public and the state's investment in its state highway system. No substantial revisions from the existing rule were made. 0 New.0, Definitions, reorganizes and replaces existing.0. This new section includes a new definition for a contractor compliance program that outlines the program components necessary for the department to consider its existence in the determination and application of sanctions. Public trust and confidence is of the utmost importance to the department and the department desires that its partners in transportation exhibit a high commitment to ethical behavior. The proposed rule changes provide a possible mitigating circumstance for imposing sanctions if the contractor has an ethics and compliance program in place at the time of the offense. Detailed information concerning the components necessary for department recognition of the existence of a OGC: 0//0 :0 AM Exhibit A

4 Texas Department of Transportation Page of contractor compliance program serves to provide clarification and understanding to affected parties, and ensure that a compliance program is potentially effective and not pro forma in nature. Definitions for unnecessary terms contained in the existing rule were removed. No other substantial revisions from the existing rule were made. 0 0 New.0, Grounds for Sanctions, the language of which is found in existing.0(a), specifies the grounds or conditions for which a contractor may be sanctioned. New.0(a)()(A)- (C) references fraud, violation of federal or state antitrust laws, embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, tax evasion, receiving stolen property, making false claims, and obstruction of justice as grounds for sanctions. The existing rule simply referenced bidding crimes. The new section provides detailed information regarding the department's interpretation of a bidding crime as it relates to sanctions. This expanded definition of a bidding crime provides clarification and necessary information to affected parties concerning the department's interpretation of a bidding crime, and serves to protect the integrity of the department's competitive bidding process by ensuring that those contractors that have demonstrated fiscal irresponsibility are not eligible to bid on department highway improvement contracts. No other substantial OGC: 0//0 :0 AM Exhibit A

5 Texas Department of Transportation Page of revisions from the existing rule were made. New.0, Notification of Rules, reorganizes and replaces existing.0(a) and states that failure to receive a copy of the sanction rules is not a contractor defense to an alleged violation of the rules. No substantial revisions from the existing rule were made. 0 0 New.0, Referral to Executive Director, combines, reorganizes, and replaces existing.0(b) and.0(c). This new section outlines the criteria the department will consider in determining whether to refer a contractor to the executive director for possible sanctions. Sections.0(a)()-() were added to provide additional information and clarification regarding department considerations in determining whether to refer a contractor to the executive director for possible sanctions. This new section provides additional clarification, protects the integrity of the competitive bid process, and ensures that only responsible bidders are eligible to bid on department highway improvement contracts. A contractor's failure to act, if an action is required, will also be considered in making a determination to refer a contractor to the executive director for possible sanctions. OGC: 0//0 :0 AM Exhibit A

6 Texas Department of Transportation Page of 0 New.0, Determinations Related to Sanction, reorganizes and replaces existing.0(a), (b), (f), and (g). This new section outlines the review and determination process regarding possible sanctions for a contractor referred to the executive director under new.0. Included as a consideration for imposing possible sanctions is the existence of, and adherence to, a compliance program as defined in new.0. The additional consideration of the existence of a contractor's internal compliance program in the determination of a sanction will serve to encourage industry use of such a program to prevent and detect noncompliance with applicable laws and procedures, and promote an industry culture that encourages ethical conduct and a commitment to compliance with the law. No other substantive revisions were made from the existing rule. New.0, Responsibility for Acts of Others, reorganizes and replaces existing.0(f) and states that the contractor is responsible for the conduct of others acting on its behalf. No substantial revisions from the existing rule were made. 0 New.0, Sanction Levels, reorganizes and replaces existing.0(b) and prescribes the various sanction levels that may be imposed on a contractor in those instances when the executive director has determined that a sanction will be imposed under.0. In determining the appropriate sanction level, the OGC: 0//0 :0 AM Exhibit A

7 Texas Department of Transportation Page of 0 executive director will consider the existence of, and the contractor's adherence to, a compliance program as defined under new.00. Consideration of the existence of a contractor's internal compliance program in the application of a sanction will serve a dual purpose to encourage industry use of such a program to promote ethical behavior, and protect the integrity of the department's competitive bidding process. Under this new section, the maximum sanction level is limited to a debarment period of 0 months. This ensures that sanctions imposed by the department are applied consistently and uniformly. No other substantial revisions from the existing rule were made. New.0, Application of Sanctions, reorganizes and replaces existing.0(e) and (f) and addresses the imposition of consecutive sanctions on a contractor determined to have committed multiple violations, and the executive director's discretion in imposing a sanction that is less than the maximum prescribed under new.0. No substantial revisions from the existing rule were made. 0 New.0, Notice of Sanctions, reorganizes and replaces existing.0(c) and provides for the content and requirements associated with the notice to a contractor of sanctions imposed by the department. No substantial revisions from the existing rule were made. OGC: 0//0 :0 AM Exhibit A

8 Texas Department of Transportation Page of 0 New.0, Suspension, reorganizes and replaces existing.0 and provides that the executive director may immediately suspend a contractor if it is determined that grounds for sanctions exist. This new section also outlines the requirements associated with the department's notice to a contractor of a suspension, which may be included in a sanctions notice. These notification requirements parallel those for sanctions and are necessary to ensure uniformity and consistency within the rule. While.0 addressed notification requirements associated with the application of sanctions, no notification requirements were listed for the application of a suspension. Suspensions will terminate once a final order is entered after a hearing or as ordered by the executive director. No other substantial revisions from the existing rule were made. 0 New., Contractual Obligations Unaffected, reorganizes and replaces existing.0(d) and states that the imposition of a sanction or suspension does not relieve a contractor's contractual obligations under an existing contract. No substantial revisions from the existing rule were made. New., Opportunity for Informal Hearing, provides those contractors sanctioned at a Level or greater the opportunity to appeal directly to the department. This new section OGC: 0//0 :0 AM Exhibit A

9 Texas Department of Transportation Page of 0 prescribes the procedures associated with filing an appeal and scheduling an informal hearing with the department. The existing rule allowed only for the opportunity to appeal and schedule a formal administrative hearing in accordance with TAC. et. seq. (relating to Procedures in Contested Cases). The department proposes this additional step in the appeals process as it recognizes the seriousness of the application of sanctions and desires to afford due process to affected contractors while also ensuring the maximum number of qualified bidders are eligible to bid on department highway improvement contracts. This additional department hearing process will also provide a more expeditious means of considering appeals associated with department sanctions and suspensions. If the executive director determines to continue a sanction, the contractor may request a formal hearing in accordance with new.. 0 New., Informal Hearing on Indirect Sanction, provides an opportunity for an informal hearing for those contractors indirectly sanctioned due to an immediate family relationship to an affiliated entity upon which a sanction was directly imposed. This new section is similar to new. with the exception that the referenced hearing will involve only the consideration of the family connection associated with the affiliated entity. This additional hearing is necessary as the department OGC: 0//0 :0 AM Exhibit A

10 Texas Department of Transportation Page of 0 recognizes that bidders who are indirectly sanctioned as affiliated entities only because of a family connection may be independent of the directly sanctioned firm. In such an instance, allowing the indirectly sanctioned contractor to be exempted from the sanction would better serve the department and public interests by providing increased competition on highway improvement contracts. As with the informal hearing provided in new., if the executive director determines to continue a sanction, the contractor may request a formal hearing in accordance with new.. 0 New., Opportunity for Formal Hearing, replaces existing.0(a) and provides a contractor dissatisfied with an informal hearing associated with new. or. the opportunity to request a formal hearing in accordance with TAC. et. seq. This new section requires that contractors wishing to appeal a department sanction or suspension first exhaust the appeals processes provided in new. and new. prior to filing an appeal with the State Office of Administrative Hearings. This is necessary to afford appealing contractors due process within the department and effectuate an appeals process that ensures the maximum number of qualified bidders are eligible to bid on highway improvement contracts, thereby increasing competition. The possibility of resolving an appeal within the department prior to a contractor filing an OGC: 0//0 :0 AM Exhibit A

11 Texas Department of Transportation Page 0 of appeal with the State Office of Administrative Hearings will also provide a more effective use of available state resources. 0 New., Stay of Sanctions, reorganizes and replaces existing.0(b) and provides that an imposed sanction is stayed pending the outcome of an informal or formal hearing. This new section also addresses the conditions for the continuance and duration of an imposed sanction in those instances when a sanction is continued following an informal hearing and a formal hearing is not requested, or when a sanction is continued following a formal hearing. Other than providing necessary information concerning the application of a stay with regard to the informal hearings provided in new. and new., no substantial revisions were made from the existing rule. 0 New., List of Debarred or Suspended Contractors, outlines the procedures taken by the department in posting on the Internet a list of the names and known affiliates and principals of those contractors upon which a Level,, or sanction has been imposed. The department is adding this provision for a list of debarred and suspended contractors to provide information to our customers regarding those contractors that are no longer eligible to bid on department highway improvement contracts due to an imposed sanction or suspension. This posting also provides a more expeditious method to communicate OGC: 0//0 :0 AM Exhibit A

12 Texas Department of Transportation Page of the necessary information concerning department sanctioned and suspended contractors to affected local, state, and federal agencies. 0 New., Request for Review, outlines the procedures a sanctioned contractor may use to request that the executive director review the imposed sanction for modification. A contractor may submit no more than one review request during any -month period. This limitation helps ensure that reviews are conducted in an efficient manner without placing an undue and unnecessary burden on available department resources. The executive director may reduce, eliminate, or modify the imposed sanction. This serves a dual purpose of providing sanctioned contractors with a process to show their rehabilitation, while also serving the best interest of the public by ensuring the maximum number of contractors are eligible to bid on highway improvement contracts thereby increasing competition. 0 FISCAL NOTE James Bass, Chief Financial Officer, has determined that for each of the first five years the repeals and new sections as proposed are in effect, there will be no fiscal implications for state or local governments as a result of enforcing or administering the repeals and new sections. OGC: 0//0 :0 AM Exhibit A

13 Texas Department of Transportation Page of Thomas Bohuslav, Director, Construction Division, has certified that there will be no significant impact on local economies or overall employment as a result of enforcing or administering the repeals and new sections. 0 PUBLIC BENEFIT AND COST Mr. Bohuslav has also determined that for each year of the first five years the sections are in effect, the public benefit anticipated as a result of enforcing or administering the repeals and new sections will be to further the department's mission to provide an efficient and fair process of administering contractor sanctions. There are no anticipated economic costs for persons required to comply with the sections as proposed. There will be no adverse economic effect on small businesses. 0 SUBMITTAL OF COMMENTS Written comments on the proposed repeal of and new.00-. may be submitted to Thomas Bohuslav, Director, Construction Division, Texas Department of Transportation, East th Street, Austin, Texas 0-. The deadline for receipt of comments is :00 p.m. on October, 00. STATUTORY AUTHORITY The repeals and new sections are proposed under Transportation OGC: 0//0 :0 AM Exhibit A

14 Texas Department of Transportation Page of Code, 0.0, which provides the Texas Transportation Commission with the authority to establish rules for the conduct of the work of the department. CROSS REFERENCE TO STATUTE None. OGC: 0//0 :0 AM Exhibit A

15 Texas Department of Transportation Page of SUBCHAPTER G. CONTRACTOR SANCTIONS.00. Purpose. It is the policy of the Texas Transportation Commission to protect the health, welfare, and safety of the traveling public and the state's substantial investment in its system of state highways. This policy requires procedures to ensure that only responsible contractors are eligible to bid on, enter, and subcontract under highway improvement contracts and that those contracts are fully performed in an efficient and timely manner Definitions. The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise. () Bidding capacity--an amount calculated in accordance with. of this chapter (relating to Qualification of Bidders). () Commission--The Texas Transportation Commission. () Compliance Program--A written internal compliance and ethics program applicable to the contractor's organization. The program must be recognized as a qualifying compliance program by the department. At a minimum the program must provide compliance standards and procedures that employees and agents are expected to follow and must provide that: NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

16 Texas Department of Transportation Page of 0 0 (A) high-level personnel are responsible for oversight of compliance with the standards and procedures; (B) appropriate care is being taken to avoid the delegation of substantial discretionary authority to individuals whom the organization knows, or should know, have a propensity to engage in illegal activities; (C) compliance standards and procedures are effectively communicated to all of the organization's employees by requiring them to participate in training and disseminating to them information that explains, in understandable language, the requirements of the program; (D) the governing body or individuals of the organization have periodic training in ethics and in the compliance program; (E) compliance standards and procedures are effectively communicated to all of the organization's agents; (F) reasonable steps are being taken to achieve compliance with the compliance standards and procedures by: () using monitoring and auditing systems that are designed to reasonably detect noncompliance; and () providing and publicizing a system for the organization's employees and agents to report suspected noncompliance without fear of retaliation; NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

17 Texas Department of Transportation Page of 0 0 (G) consistent enforcement of compliance standards and procedures is administered through appropriate disciplinary mechanisms; (H) reasonable steps are being taken to respond appropriately to detected offenses and to prevent future similar offenses; and (I) the organization has a written employee code of conduct that, at a minimum, addresses: () record retention; () fraud; () equal opportunity employment; () sexual harassment and sexual misconduct; () conflicts of interest; () personal use of the organization's property; and () gifts and honoraria. () Contractor--An entity that is eligible to bid on a highway improvement contract or that functions or seeks to function as a subcontractor under a highway improvement contract or as a supplier of materials or equipment to be used in the construction or maintenance of a part of the state highway system. The term includes an affiliated entity of a contractor, as described by.(c) of this chapter (relating to Affiliated entities). NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

18 Texas Department of Transportation Page of 0 0 () Debarment--Disqualification of a contractor from bidding on or entering into a highway improvement contract, from participating as a subcontractor under a highway improvement contract, and from participating as a supplier of materials or equipment to be used in the construction or maintenance of a part of the state highway system. () Executive director--the executive director of the Texas Department of Transportation or the director's designee not below the level of division director. () Highway improvement contract--a contract entered under Transportation Code, Chapter, Subchapter A for the construction, reconstruction, or maintenance of a segment of the state highway system, or for the construction or maintenance of a building or other facility appurtenant to a building. () Sanction--Debarment or reduction in bidding capacity. () Suspension--Immediate, temporary disqualification of a contractor from bidding on or entering into a highway improvement contract, from participating as a subcontractor under a highway improvement contract, and from participating as a supplier of materials or equipment to be used in the construction or maintenance of a part of the state highway system. Suspension differs from a sanction involving debarment as it may take effect prior to and during a hearing. NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

19 Texas Department of Transportation Page of Grounds for Sanctions. The executive director may sanction a contractor for: () a conviction of, a plea of guilty or nolo contendere to a charge of, or a civil judgment or a public admission by the contractor or an individual or entity that acted on behalf of the contractor related to: (A) fraud or other criminal offense in connection with obtaining, attempting to obtain, or performing a public agreement or transaction; (B) the violation of a federal or state antitrust statute, including a statute that proscribes price fixing between competitors, allocation of customers between competitors, or bid rigging; or (C) embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, tax evasion, receiving stolen property, making false claims, or obstruction of justice; () any other offense indicating a lack of business integrity or business honesty that seriously and directly affects the contractor's responsibility, if the executive director has probable cause to believe that the offense has been committed; NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

20 Texas Department of Transportation Page of 0 () the contractor's disqualification by the comptroller, another state, or an agency of the federal government for any of the reasons listed in this section; () failure to execute a highway improvement contract after a bid is awarded, unless the contractor honors a bid guaranty submitted under.(c) of this chapter (relating to Bid guaranty); () the rejection by the commission of two or more bids by the contractor during the -month period preceding the month in which the determination is being made because of contractor error; () failure of the contractor to notify the department promptly of a conviction of a crime related to bidding or debarment for any reason by the comptroller, another state, or an agency of the federal government; or () the contractor's declaration of default on a highway improvement contract Notification of Rules. The department will send a copy of this subchapter to each prequalified contractor. The department's failure to comply with this subsection does not affect the applicability of this subchapter. NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

21 Texas Department of Transportation Page of Referral to Executive Director. (a) Considerations for referral. In determining whether to refer a contractor to the executive director for possible sanctions for the contractor's actions, the department may consider: () the contractor's involvement in planning, initiating, or carrying out the actions or involvement in the failure to act; () whether, in light of all facts and circumstances, a lengthy debarment is necessary to protect the interest of the state; () restitution paid by the contractor or a third party for damages suffered by a governmental entity as a result of the contractor's actions or failure to act; () cooperation by the contractor with a governmental entity in the investigation of the contractor's actions or failure to act, including the provision of a full and complete account of the contractor's involvement; () the contractor's dissociation from individuals and firms that have been involved with the actions or failure to act; () the actual or potential harm or impact resulting from the contractor's actions or failure to act; NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

22 Texas Department of Transportation Page of 0 0 () the frequency or duration of the incidents related to the actions; () any history or pattern of related offenses by the contractor; () the contractor's exclusion or disqualification by the federal government or another state; (0) whether the contractor recognizes the seriousness of its actions and has accepted responsibility for the actions; () whether the actions were pervasive within the contractor's organization; () the positions held by the persons involved in the actions; () whether the contractor's organization took appropriate corrective action or remedial actions to prevent recurrence; () whether the principals of the organization tolerated the actions; () whether the contractor brought the actions to the attention of the appropriate government agency in a timely manner; () whether effective standards of conduct and internal controls were in place at the time the act occurred; () any appropriate disciplinary actions taken against NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

23 Texas Department of Transportation Page of those individuals responsible for the actions; and () any other factors appropriate to the circumstances of a particular case. (b) Failure to act. For purposes of this section, "action" includes the failure to act if action is required Determinations Related to Sanction. (a) Determination of existence of grounds. If the contractor's actions are referred to the executive director, the executive director will determine whether a ground for sanctioning the contractor listed by.0 of this subchapter (relating to Grounds for Sanctions) exists. (b) Determination to sanction. If the executive director determines that one or more grounds for sanctioning the contractor exist, the executive director will determine whether or not to impose sanctions against the contractor. In making that determination, the executive director will consider: () the seriousness of a contractor's actions or failure to act and the circumstances giving rise to those actions or failures; () the existence of, and adherence to, a compliance program, and whether the program compliance officer has the authority to implement the program effectively; and NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

24 Texas Department of Transportation Page 0 of () any other mitigating circumstances. (c) Agreed modification of procedure. The procedure for considering a sanction may be modified by an agreement between the executive director and the contractor..0. Responsibility for Acts of Others. The conduct of an individual or entity acting on behalf of a contractor may be imputed to the contractor Sanction Levels. (a) If the executive director determines to impose a sanction on a contractor under.0 (relating to Determinations Related to Sanction), the executive director will determine which of the following sanction levels is to be applied: () Level --A 0% reduction in bidding capacity for no more than months. () Level --Debarment of the contractor for no more than months. () Level --Debarment of the contractor for no more than months. () Level --Debarment of the contractor for no more than 0 months. NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

25 Texas Department of Transportation Page of 0 (b) In determining the appropriate sanction level, the executive director will consider the existence of, and the contractor's adherence to, a compliance program, and whether the contractor's program compliance officer has the authority to effectively implement the program. (c) If a contractor is debarred on the ground provided by.0() (relating to Grounds for Sanctions), the period of the debarment may not exceed the period of disqualification established by the state or federal agency on which the debarment is based Application of Sanctions. (a) Consecutive sanctions. In the case of multiple actions or failures by a contractor arising out of separate occurrences, the executive director may impose multiple sanctions consecutively and in any order. (b) Imposition of lesser sanctions. When applying a level of sanctions provided by.0 (related to Sanction Levels), the executive director may impose a sanction that is less than the maximum sanction for that level. For example, the bidding capacity may be reduced by a lesser percentage than the percentage provided for Level, or a reduction in bidding capacity of any amount may be ordered for any length of time for NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

26 Texas Department of Transportation Page of Level,, or Notice of Sanctions. (a) Notification. The department will notify a contractor of a sanction by certified mail within five calendar days after the executive director's decision to impose the sanction. (b) Contents. The notice will give the general reasons for the sanction, summarize the facts and circumstances underlying the sanction, identify the effective date and period of the sanction, and, if applicable, state that the contractor may request a hearing within 0 days after the date of receiving the notice of the sanction. (c) Effective date. Except as provided in. of this subchapter (relating to Stay of Sanctions), a sanction is effective on the date specified in the notice Suspension. (a) The executive director may immediately suspend a contractor under this section if the executive director determines that grounds for a sanction exist under.0 of this subchapter (relating to Grounds for Sanctions). (b) Notice of suspension. The department will notify a contractor of a suspension by certified mail within five NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

27 Texas Department of Transportation Page of 0 calendar days after the executive director's decision to suspend the contractor. The notice will: () give the general reasons for the suspension; () summarize the facts and circumstances underlying the suspension; () identify the effective date of the suspension; and () state that the contractor may petition in writing for an informal hearing within 0 days after the date of receiving the notice of the suspension. (c) Inclusion in sanction notice. The notice of suspension may be included in a sanction notice under.0 of this subchapter (relating to Notice of Sanctions). (d) Duration. A suspension will terminate when a final order is entered after a hearing or when ordered by the executive director. 0.. Contractual Obligations Unaffected. The imposition of a sanction or suspension does not affect a contractor's contractual obligations or limit the commission's contractual remedies... Opportunity for Informal Hearing. (a) A contractor that is sanctioned at a Level or NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

28 Texas Department of Transportation Page of 0 0 greater, or suspended, may request an informal hearing on the sanction or suspension. The request must be in writing and received by the department within 0 days after the date the contractor receives notice of the sanction or suspension. For the purpose of requesting a hearing, a notice of sanction or suspension is presumed to be received by the contractor on the third business day after the date on which it is mailed by the department. (b) Not later than the 0th day after the date of receipt of the written request, the executive director will hold an informal hearing with the contractor to discuss the sanction or suspension. (c) The contractor will be given the opportunity to present evidence at the hearing to demonstrate that not imposing the sanction or suspension is in the best interest of the state. (d) The executive director will consider the evidence presented and inform the contractor in writing within 0 days of the informal hearing of the final determination to continue, modify, or end the sanction or suspension. (e) If the executive director determines to continue a sanction, the contractor may request a formal hearing under. of this subchapter (relating to Opportunity for Formal Hearing). NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

29 Texas Department of Transportation Page of Informal Hearing on Indirect Sanction. (a) An entity may petition the executive director for an informal hearing on the imposition of a sanction or suspension that is indirectly imposed on the entity solely because of a family relationship with another entity on which the sanction or suspension was directly imposed. (b) Not later than the 0th day after the date of receipt of the written request, the executive director will hold an informal hearing with the entity to discuss the family relationship associated with the affiliation. (c) Within days after the date the informal hearing is held, the department will conduct a review to determine the affiliation of the entities. () The review will include, but is not limited to, consideration of the entities': (A) intercompany transactions; (B) equipment; (C) personnel; (D) office space; (E) finances; and (F) other affiliation criteria. () For purposes of this section, two entities are NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

30 Texas Department of Transportation Page of 0 0 affiliated if one of the entities was formed after the sanction or suspension of the other entity and has the same or similar management, ownership, or principal employees as the sanctioned or suspended entity. (d) The executive director will consider the evidence presented and inform the entity in writing within 0 days of the informal hearing of the final determination to continue or lift the indirect sanction or suspension. (e) The executive director may grant an exception to the indirect sanction only if the department finds that the operations and control of an entity affected by an indirect sanction are independent from the directly sanctioned entity. (f) The granting of a sanction or suspension exception does not remove the affiliation classification between the affected business entities. (g) The department may conduct follow-up reviews and revoke the exception if the department determines that the affiliated entities are no longer independent. (h) If the executive director does not grant an exception and determines to continue an indirect sanction or suspension, the entity may request a formal hearing under. of this subchapter (relating to Opportunity for Formal Hearing). NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

31 Texas Department of Transportation Page of 0.. Opportunity for Formal Hearing. (a) If the contractor is dissatisfied with the decision following an informal hearing under. (relating to Opportunity for Informal Hearing) or. (relating to Informal Hearing on Indirect Sanction), the contractor may request an administrative hearing under. et seq. of this title (relating to Procedures in Contested Cases). (b) The request must be received by the executive director within 0 days after the date that the contractor receives notice of the determination under.(d) of this subchapter (relating to Opportunity for Informal Hearing) or.(d) of this subchapter (relating to Informal Hearing on Indirect Sanction). 0.. Stay of Sanctions. (a) A sanction is automatically stayed from the date a petition for an informal hearing is received until the date the decision is made following the informal hearing, or from the date a request for a formal hearing is received until the date a final order is entered by the commission. (b) If a formal hearing is not requested following an informal hearing, the full term of the sanction will be reinstated on the date of the entry of a decision to continue NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

32 Texas Department of Transportation Page of the sanction as if the sanction were first imposed on that date. (c) If a formal hearing is requested, the full term of the sanction will be reinstated on the date of the entry of a final decision imposing the sanction or the date the hearing request is dismissed as if the sanction were first imposed on that date unless the commission specifically orders that a lesser sanction be imposed List of Debarred or Suspended Contractors. (a) To inform non-sanctioned contractors and local governments of the contractors that are ineligible to participate in department contracts, the department will post on the department's Internet site a list of names of the contractors and their known affiliates and principals on which a Level, Level, or Level sanction has been imposed. (b) The department will update the posting after the later of the time of: () the determination under.0 (relating to Determinations Related to Sanction); () the determination under. of this subchapter (relating to Opportunity for Informal Hearing) or. of this subchapter (relating to Informal Hearing on Indirect Sanction) if an informal hearing is timely requested; or NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

33 Texas Department of Transportation Page of () the commission's final order if a formal hearing is timely requested. (c) The department will update the posting immediately after the executive director suspends a contractor under.0 of this subchapter (relating to Suspension) Request for Review. (a) A sanctioned contractor may send a written request to the executive director to review an imposed sanction for modification. The request must provide new evidence supporting the request for review. (b) The executive director will not consider more than one request under this section relating to a sanction during any - month period. (c) The executive director will review the evidence provided in the contractor's written review request and inform the contractor in writing of the final determination on the modification of the sanction. (d) If the executive director determines that modification of the sanction is in the public interest, the executive director may reduce or eliminate the imposed sanction. NOTE: New Sections OGC: 0//0 :0 AM Exhibit B

34 Texas Department of Transportation Page of 0 SUBCHAPTER G. CONTRACTOR SANCTIONS.00. Purpose. It is the policy of the Texas Transportation Commission to protect the health, welfare, and safety of the traveling public and the state's substantial investment in its system of state highways. This requires procedures to ensure that only responsible contractors are eligible to bid on, enter, and subcontract under highway improvement contracts and that those contracts are fully performed in an efficient and timely manner Definitions. The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise. () Bidding capacity--an amount calculated in accordance with. of this chapter (relating to Qualification of Bidders). () Bidding crime--an act prohibited by state or federal law, committed in any jurisdiction, and involving fraud, conspiracy, collusion, perjury, or material misrepresentation with respect to a public contract. () Commission--The Texas Transportation Commission. () Contractor--An entity that is eligible to bid on a highway improvement contract or that functions or seeks to NOTE: Repeals OGC: 0//0 : AM Exhibit C

35 Texas Department of Transportation Page of function as a subcontractor under a highway improvement contract or as a supplier of materials or equipment to be used in the construction or maintenance of a part of the state highway system. The term includes an affiliated entity, which is an entity so closely associated with another entity that the two entities will be treated as a single entity. Affiliation may be found when one entity has the power to control another entity, directly or indirectly; when a third party has the power to control two or more other entities, directly or indirectly; when the owner of one entity is a spouse or immediate family member of the owner of the other entity; or when two entities have been so closely allied through an established course of dealings (such as loans, joint ventures, common ownership, common board members, common management, or joint advertising) that the public would reasonably perceive the two entities as under common control. () Debarment--Disqualification of a contractor from bidding on or entering into a highway improvement contract, from participating as a subcontractor under a highway improvement contract, and from participating as a supplier of materials or equipment to be used in the construction or maintenance of a part of the state highway system. () Executive director--the executive director of the NOTE: Repeals OGC: 0//0 : AM Exhibit C

36 Texas Department of Transportation Page of Texas Department of Transportation or the director's designee not below the level of assistant executive director. () Highway improvement contract--a contract entered under Transportation Code, Chapter, Subchapter A, or under Transportation Code, Chapter, for the construction, reconstruction, or maintenance of a segment of the state highway system, or for the construction or maintenance of a building or appurtenant facility. () Maintenance contract--a highway improvement contract for maintenance work on a segment of the state highway system. () Sanction--Debarment, suspension, or reduction in bidding capacity. (0) Subcontractor--An entity to which a prime contractor sublets or proposes to sublet a portion of a highway improvement contract. () Suspension--Immediate, temporary disqualification of a contractor from bidding on or entering into a highway improvement contract, from participating as a subcontractor under a highway improvement contract, and from participating as a supplier of materials or equipment to be used in the construction or maintenance of a part of the state highway system. Suspension differs from debarment because it may take effect prior to and during a hearing. NOTE: Repeals OGC: 0//0 : AM Exhibit C

37 Texas Department of Transportation Page of Procedure. (a) Notification of rules. A copy of this subchapter will be sent to each prequalified contractor. Failure to comply with this subsection does not affect the applicability of this subchapter. (b) Referral to executive director. In determining whether to refer a contractor to the executive director for possible sanctions, the department will consider the criteria in.0(c) of this subchapter. (c) Notice of sanctions. The department will notify a contractor of a sanction by certified mail within five days after the executive director's decision to impose the sanction. The notice will give the general reasons for the sanction, summarize the facts and circumstances underlying the sanction, identify the effective date and period of the sanction, and state that the contractor may petition for a hearing within 0 days after receiving notice of the sanction. Except as provided in.0 of this subchapter, a sanction is effective on the date specified in the notice. (d) Contractual obligations unaffected. The imposition of sanctions does not affect a contractor's contractual obligations or limit the commission's contractual remedies. NOTE: Repeals OGC: 0//0 : AM Exhibit C

38 Texas Department of Transportation Page of 0 (e) Agreed modification of procedure. The procedure for considering a sanction may be modified by agreement of the executive director and the contractor. (f) Responsibility for acts of others. The conduct of an individual or entity acting on behalf of a contractor may be imputed to the contractor Opportunity for Hearing. (a) Availability of hearing. A contractor will be given the opportunity for a hearing after receiving notice of a sanction. A contractor may petition for a hearing as provided in. et seq. of this title (relating to Procedures in Contested Cases). The petition must be filed within 0 days after the contractor receives notice of the sanction. (b) Stay of sanctions pending hearing. A sanction, except a suspension, is automatically stayed from the date a petition for hearing is filed until a final order is entered by the commission. On entry of a final order imposing the sanction or dismissing the hearing, the full term of the sanction will be reinstated as if it were first imposed on the date of the final order unless the commission specifically orders that a lesser sanction be imposed. (c) Commission discretion. In the public interest, the NOTE: Repeals OGC: 0//0 : AM Exhibit C

39 Texas Department of Transportation Page of 0 commission may reduce, eliminate, or modify sanctions imposed under this section at any time Application of Sanctions. (a) Determination of offense. The executive director will determine whether a contractor has committed an act or omission listed under.0(a) of this subchapter. (b) Consideration of all circumstances. The existence of grounds for imposing a sanction does not mandate that a contractor be sanctioned. The seriousness of a contractor's acts or omissions (including the existence of and elapsed time since previous acts or omissions) and any mitigating circumstances will be considered before sanctions are imposed. (c) Mitigating circumstances. The executive director will consider mitigating circumstances in deciding whether to impose sanctions. Mitigating circumstances may include: () the contractor's culpability; () whether, in light of all facts and circumstances, a lengthy debarment is necessary to protect the interest of the state; () restitution paid by the contractor or a third party for damages suffered by a governmental entity as a result of the contractor's actions; NOTE: Repeals OGC: 0//0 : AM Exhibit C

40 Texas Department of Transportation Page of () cooperation by the contractor with a governmental entity in the investigation of bidding crimes, including the provision of a full and complete account of the contractor's involvement; and () the contractor's disassociation from individuals and firms that have been involved in a bidding crime. (d) Determination of sanction level. The executive director, after consideration of all circumstances (including any mitigating circumstances) will determine a sanction level described in.0(b) of this subchapter to be imposed on the contractor. (e) Consecutive sanctions. In the case of multiple violations of department contracts by the same contractor arising out of separate occurrences, the executive director may impose multiple sanctions consecutively and in any order. (f) Imposition of lesser sanctions. A lesser sanction may be imposed instead of the maximum sanction permitted. Debarment may be ordered for a shorter time, bidding capacity may be reduced by a lesser percentage, or a reduction in bidding capacity of any amount may be ordered instead of debarment for any length of time. (g) Executive director discretion. In the public interest the executive director may reduce, eliminate, or modify NOTE: Repeals OGC: 0//0 : AM Exhibit C

41 Texas Department of Transportation Page of 0 sanctions at any time..0. Suspension. (a) Grounds. The executive director may immediately suspend a contractor without a prior hearing if the contractor is notified of debarment under.0 of this subchapter. (b) Duration. A suspension will terminate when a final order is entered after a hearing or when ordered by the executive director Sanctions. (a) Grounds. The executive director may sanction a contractor for the following reasons: () conviction of a bidding crime, a plea of guilty or nolo contendere to a charge of a bidding crime, or a public admission to a bidding crime, whether made by the contractor or by an individual or entity that acted on behalf of the contractor; () conviction of the contractor for an offense indicating a lack of moral or ethical integrity, such as bribery or payment of kickbacks or secret rebates to agents of a governmental entity, if the offense reflects on the business practices of the contractor; NOTE: Repeals OGC: 0//0 : AM Exhibit C